section 4c savings plans and investments n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Section 4C Savings Plans and Investments PowerPoint Presentation
Download Presentation
Section 4C Savings Plans and Investments

Loading in 2 Seconds...

play fullscreen
1 / 17

Section 4C Savings Plans and Investments - PowerPoint PPT Presentation


  • 149 Views
  • Uploaded on

Section 4C Savings Plans and Investments. Pages 246-268. Savings Plans and Investments. The Savings Plan Formula Planning Ahead with Savings Plans Total and Annual Returns Types of Investments Stocks Bonds Mutual Funds. Savings Plans.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Section 4C Savings Plans and Investments' - Mia_John


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide2

Savings Plans and Investments

  • The Savings Plan Formula
  • Planning Ahead with Savings Plans
  • Total and Annual Returns
  • Types of Investments
  • Stocks
  • Bonds
  • Mutual Funds
slide3

Savings Plans

Deposit a lump sum of money and let it grow through the power of compounding (4B).

Deposit smaller amounts [in an interest earning account] on a regular basis (4A)

IRA’s, 401(k), Koegh, PensionSpecial Tax Treatment

slide4

ex/pg246 You deposit $100 into a savings plan at the end of each month. The plan has an APR of 12% and pays interest monthly.

slide5

Is there a Savings Plan Formula?

WOW !!!

where

A = accumulated savings plan balance PMT = regular payment amount APR = annual percentage rate (decimal) n = number of payment periods per year Y = number of years

This formula assumes the same payment and compounding periods.

slide6

Where did this formula come from?

Another way to figure accumulated value.

After 6 months:

End of month1 payment is now worth $100 x (1.01)5

End of month2 payment is now worth $100 x (1.01)4

End of month3 payment is now worth $100 x (1.01)3

End of month4 payment is now worth $100 x (1.01)2

End of month5 payment is now worth $100 x (1.01)1

End of month6 payment is now worth $100

slide7

After 6 months:

100x(1.01)5+100x(1.01)4+100x(1.01)3+100x(1.01)2+100x(1.01)1+100

= 100 x ((1.01)5 + (1.01)4 + (1.01)3 + (1.01)2 + (1.01) + 1)

Do you see a pattern?

After 10 months:

A = 100 x ((1.01)9 + (1.01)8 + (1.01)7 + … + (1.01)2 + (1.01) + 1)

After 55 months:

A = 100 x ((1.01)54 + (1.01)53+ (1.01)52 + … + (1.01)2 + (1.01) + 1)

slide8

After N months:

A = 100x [(1.01)N-1+(1.01)N-2+(1.01)N-3+ …+(1.01)2+(1.01)+1]

BN-1 + BN-2 + BN-3 + … + B2 + B1 + 1 =

slide9

ex1/pg246-7 Use the savings plan formula to calculate the balance after 6 months for an APR of 12% and monthly payments of $100.

Calculator:

slide10

ex2/pg248 At age 30, Michelle starts an IRA to save for retirement. She deposits $100 at the end of each month. If she can count on an APR of 8%, how much will she have when she retires 35 years later at age 65? Compare the IRA’s value to her total deposits over this time period.

Calculator:

slide11

ex2/pg248 At age 30, Michelle starts an IRA to save for retirement. She deposits $100 at the end of each month. If she can count on an APR of 8%, how much will she have when she retires 35 years later at age 65? Compare the IRA’s value to her total deposits over this time period.

slide12

ex2/pg248 At age 30, Michelle starts an IRA to save for retirement. She deposits $100 at the end of each month. If she can count on an APR of 8%, how much will she have when she retires 35 years later at age 65? Compare the IRA’s value to her total deposits over this time period.

The accumulated value of the IRA is $229,613

The value of the deposits is 35 x 12 x 100 = $42,000

[Compounding interest accounts for $229,613 - $42,000 = $187,613.]

WOW!

The Power of Compounding

slide13

ex3/pg250(Planning Ahead with Savings) You want to build a $100,000 college fund in 18 years by making regular, end of the month deposits. Assuming an APR of 7%, calculate how much you should deposit monthly. How much of the final value comes from actual deposits and how much from interest?

slide14

ex3/pg250(Planning Ahead with Savings) You want to build a $100,000 college fund in 18 years by making regular, end of the month deposits. Assuming an APR of 7%, calculate how much you should deposit monthly. How much of the final value comes from actual deposits and how much from interest?

slide15

ex3/pg250(Planning Ahead with Savings) You want to build a $100,000 college fund in 18 years by making regular, end of the month deposits. Assuming an APR of 7%, calculate how much you should deposit monthly. How much of the final value comes from actual deposits and how much from interest?

The monthly payments are $232.18.

The value of the deposits is 18 x 12 x 232.18 = $50,151

[The accumulated value of the fund is $100,000.]

[Compounding interest accounts for $100000 - $50151 = $49849.]

WOW!

The Power of Compounding

slide16

More Practice

47/246 Find the savings plan balance after 18 months with an APR of 6% and monthly payments of $600

49/246 You set up an IRA with an APR of 5% at age 25. At the end of each month you deposit $75 in the account. How much will the IRA contain when you retire at age 65? Compare the amount to the total amount of deposits made over the time period.

53/246 You intend to create a college fund for your baby. If you can get an APR of 7.5% and want the fund to have a value of $75,000 after 18 years, how much should you deposit monthly?

slide17
Homework

Pages 265-269

# 48, 50, 52, 54